The global oil market is currently slightly oversupplied, but it is expected to shift to being undersupplied sometime in the late second quarter or early third quarter, according to Rob Thummel, portfolio manager at Tortoise. As a result, there is likely to be a positive price response, with oil prices expected to rise.
Despite a production cut announced by OPEC+ last month, crude prices have been under pressure recently. West Texas Intermediate (WTI) and Brent initially surged on the news, but those gains were later lost. WTI closed at $70.04 per barrel on Friday, while Brent futures settled at $74.17.
However, oil analysts anticipate a rise in demand as China's economy reopens following strict Covid lockdowns last year. Thummel notes that the whole world is waiting for the Chinese economy to reopen and that it is gradually doing so. He expects the demand for oil globally and in China to grow and accelerate throughout the rest of this year.
Thummel also believes that gas and oil related stock prices will rise in tandem with crude. Year-to-date, the S&P Energy Select Sector (XLE) is down 10%, underperforming the broader markets. However, Thummel thinks it's an attractive time to be looking at the energy sector because prices are probably low and are likely to go higher.
It's worth noting that rising oil prices can have negative implications for businesses and consumers alike, as they can lead to increased inflation and slower economic growth. As such, investors should carefully consider the risks and potential rewards of investing in the energy sector in the coming months.
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